EC Principles of Microeconomics

Transcription

1 EC Principles of Microeconomics Instructor: Dr. Pınar ERTÖR AKYAZI Office hours: TBA

2 Textbook (required) Microeconomics in Context 2nd Edition Student Study Guide for the book: pubs/te/mic/mic_2e_study_gu ide_complete.pdf

3 Other interesting sources The CORE Project (Free) Ebook:

4 Other interesting sources İktisat nedir? Emrah Aydınonat İletişim Yayınları

5 Other interesting sources Herkes için iktisat Jim Standford Yordam Kitap

6 Other interesting sources Görünmeyen ekonomist Tim Harford Pegasus Yayınları

7 Other interesting sources Contending Economic Theories: Neoclassical, Keynesian, and Marxian Richard D. Wolff and Stephen A. Resnick

8 Grading Midterm 1 25% Midterm 2 25% Announced quizzes 10% Final 40%!! This may be useful!! Print the slides before coming to each lecture so that you can take notes on the printed slides during the lecture! This makes studying for the exam so much more easier!! The slides will be here:

9 A first introduction to economics: Some interesting economic facts, data, and figures

10 GDP growth rates Sustained, rapid growth in GDP per capita since 1700s experienced by countries worldwide. How did this happen? Source: The CORE Project

11 Population growth Population has also experienced rapid growth. Growth is slowing down due to the demographic transition (fall in birth rates > fall in death rates) Source: The CORE Project

12 Environmental consequences Increased production and population growth affects the environment Global impacts climate change Local impacts pollution in cities, deforestation Technology may provide the solution? Source: The CORE Project

13 Income inequality

14 Gini Coefficient 0.7 Income inequality International comparisons Source: U.S. Central Intelligence Agency, CIA World Factbook.

15 Gender-based earnings inequality

16 Educational attainment

17 Total Taxes, Percent of GDP Taxes International comparisons Source: Organisation for Economic Co-operation and Development, online tax statistics database.

18 Global international trade

19 Stock market performance

20 Median home prices

21 Median worker earnings vs. corporate profits

22 CEO pay vs. worker pay: International comparisons

23 Industrial concentration ratios

24 Global carbon dioxide emissions

25 Emissions per Capita (Tons) 35 Per capita carbon dioxide emissions International comparisons Source: U.S. Energy Information Administration, International Energy Statistics.

26 Lecture 1: Economic Activity in Context

27 What is economics? The study of the way people organize themselves to sustain life and enhance its quality

28 What is economics? Economics is the study of how people interact with each other and with their natural surroundings in producing their livelihoods, and how this changes over time. Source: The CORE Project

29 What is economics for? (Goals of economic activity) Positive questions: questions about how things are Normative questions: questions about how things should be

30 What is economics for? (Goals of economic activity) Final goals: goals that require no further justification; it is an end in itself Intermediate goals: goals that are desirable because its achievement will bring you closer to final goals

31 What is economics for? (Goals of economic activity) Wealth: Value of all material assets owned by an individual Efficiency: the use of resources in a way that does not involve any waste

32 What is economics for? (Goals of economic activity) Well-being: a shorthand term for the broad goal of promoting the sustenance and flourishing of life Utility: A single concept thought to cover all possible final goals; anything that people might desire

33 A potential list of final goals

34 Unintended consequences of economic activity Negative externalities Harmful side effects of economic activity that affect persons or entities (such as environment) that are not among the economic actors directly responsible for this activity Positive externalities Beneficial side effects of economic activity that accrue largely to persons or entities that are not among the economic actors directly responsible for this activity

35 What is economics about? 4 essential economic activities 1. Resource maintenance Management of natural, manufactured, human, and social resources in such a way that their productivity is sustained 2. Production Conversion of some of these resources into usable products (into goods and services)

36 What is economics about? 4 essential economic activities 3. Distribution Sharing of products and resources among people Exchange: the trading of one thing for another Transfer: the giving of something, with nothing specific expected in return 4. Consumption The final use of a good or service

37 3 basic economic questions What should be produced, and what should be maintained? How should production and maintenance be accomplished? For whom should economic activity be undertaken?

38 Economic trade-offs Abundance: resources are abundant to the extent that they exist in plentiful supply for meeting various goals Scarcity: resources are scarce to the extent that they are not sufficient to allow all goals to be accomplished at once

39 Society s production PPF possibilities frontier (PPF) A curve showing the maximum amounts of 2 outputs that society could produce from given resources, over a given time period Quantity of Butter

40 B Assumptions: D C A PPF Quantity of Butter Opportunity cost: The value of the best alternative that is foregone when a choice is made

41 B C D A Quantity of Output 1

42 B C D Quantity of Resource-Depleting Production A

43 3 spheres of economic activity Core sphere: households, families, communities Public purpose sphere: governments and their agencies, as well as non-profit organizations Business sphere: firms that produce goods and services for profitable sale

44 Core sphere Some activities in this sphere are not recorded in GDP (gross domestic product) statistics although they are critical for human well-being (such as domestic housework, child care, care for elderly) There are limits to what can be accomplished in the small-scale, largely informal core sphere, hence, the public purpose sphere needed.

45 Public purpose sphere These institutions exist for an explicit purpose related to the public good However, their definitions of public good may differ. Public purpose sphere is able to provide goods and services that cannot, or would not, be well provided by core sphere institutions and businesses alone.

46 Public purpose sphere Public goods Goods for which 1. use by one person does not diminish usefulness to others, and 2. it would be difficult to exclude anyone from benefiting Free riders People who would like to enjoy the benefit of a public good without paying for it.

47 Business sphere Firms may not always aim for the highest profit: 1. They may prefer to take social and ethical concerns into consideration instead of mindless profiteering 2. Sometimes top officers and managers may act, for example, not in the profit making interest of the owners but according to their personal selfinterest.

48 Business sphere Business interests may or may not coincide with overall social well-being: - They might not take negative externalities or positive externalities into account. - The potential for social harm grows when firms gain excessive market power, i.e. when they come to dominate the market in their area.

49 Microeconomics vs. Microeconomics Macroeconomics The sub-field of general economics that focuses on activities that take place within and among the major economic organizations of a society Macroeconomics The sub-field of general economics that focuses on the economy as a whole

50 What is a model? Definition: an analytical tool that highlights some aspects of reality while ignoring others Examples: a story, an image, a figure, a graph, a set of equations

51 Building an economic model Key elements of an economic model: A simplified description of the situation A simple description of what determines people s actions How each of their actions affects others. The outcome of these actions. This is often an equilibrium (a self-perpetuation situation) Models give insight on what happens when conditions change. Source: The CORE Project

52 Key concepts Less is more: Ceteris paribus = simplification that involves "holding other things (in/outside the model) constant. Incentives = economic rewards or punishments, which influence the benefits and costs of alternative courses of action Relative prices help us compare alternatives. Economic rent = the benefit received from a choice, taking into account the next best alternative (reservation option) Forms the basis of how we make choices. Source: The CORE Project

53 Neoclassical (traditional) model A simple, mechanical model that portrays the economy as a collection of profit-maximizing firms and utility-maximizing households interacting through perfectly competitive markets (As opposed to other models such as Marxian, Keynesian, etc.)

54 Economics in «Context»

55 Let s watch: Story of Solutions